The Prophet Greenspan
Steal a little and they throw you in jail;
Steal a lot, and they make you king. - Bob Dylan
In Confessions of an Economic Hitman, John Perkins reflects on the World Trade Center during his first visit to New York City following their destruction on September 11:
I went on around the block, to Pine Street. There I came face-to-face with the world headquarters of Chase, the bank David Rockefeller built, a bank seeded with oil money and harvested by men like me. This bank, an institution that served the Economic Hit Men and that was a master at promoting global empire, was in many ways the very symbol of the corporatocracy.
I recalled reading that the World Trade Center was a project started by David Rockefeller in 1960, and that in recent years the complex had been considered an albatross. It had the reputation of being a financial misfit, unsuited to modern fiber-optic and Internet technologies, and burdened with an inefficient and costly elevator system. Those two towers once had been nicknamed David and Nelson. Now the albatross was gone.
One of the most important lessons of 9/11 was that we should never take our eyes off the money. Billions were made in the destruction of the towers, without even accounting for the uptick in oil and arms that followed. (See here for the account of what happened to the WTC data recovery to "unlock the truth behind an unexplained surge in financial transactions," according to a hopelessly naive report of December, 2001.) Follow the money is a cliche because its truth became trite by matching an overly-familiar pattern. Like the scorpion that jabs the turtle carrying it to shore, the power elite can't forego an opportunity to make a sting. "It's in my nature."
"Does Alan Greenspan have some explaining to do?" begins a provocative analysis of the actions of the Federal Reserve in the hours before the London bombings by The Cunning Realist - an "executive in the financial industry" who describes himself as a "lifelong conservative with a strong independent streak." (And judging by his blogroll, which includes links to Andrew Sullivan, The National Review and Talking Points Memo, I'd say he pegged himself pretty well.)
It is difficult to overestimate the importance to the financial markets of Fed-created liquidity. In a paper from August 2003, researchers at the Federal Reserve Bank of St. Louis wrote, "Open market operations are not another weapon in the Fed's arsenal, but the only weapon in its arsenal."
With that in mind, what happened last week is fascinating. Here are two charts of the Fed's recent level of activity. The first shows the expanding and shrinking daily size of the temporary liquidity pool. The date (ending on July 8th) is indicated on the bottom of the chart, and the size of the pool in billions is on the left:
The second graph represents the Fed's injections of permanent liquidity:
The Cunning Realist adds:
"The terrorist attacks in London took place on Thursday. The Fed dramatically increased the pool of liquidity available for stocks to a multi-year high 48 hours before that---an ideal amount of time for that liquidity to filter into the market---and kept it elevated for the next few days. And indeed, it worked. The stock market saw heavy buying right at the opening bell on Thursday and has shot straight up since then.
"Why did the Fed do this? Was it just another coincidence in our financial markets that somehow managed to immediately precede a major geopolitical event?"
Fintan Dunne of breakfornews.com has also picked up the story, and writes that the Federal Reserve "has previously supported financial markets by increasing liquidity to boost the stock market - as happened after 9/11. But... the Fed had already hugely increased liquidity 48 hours before [the London attacks], just in time for that liquidity to filter into the market."
I found it interesting that the Cunning Realist writes "financial professionals generally consider this 'man behind the curtain' stuff. Those who are aware of it don't like to discuss it, because it implies that stocks rise and fall based on something other than fundamentals and their own acumen."
They say you have to be lucky to be good, but they would say that. After all, they're the carnies calling the suckers into the tent of the marketplace. You pay your money and you take your chance. And if you play the game, you might get lucky, but you don't get to roll with Rockefeller and Greenspan. Because maybe to be good, more than being lucky, you need to be bad.